Introduction

A demat account acts as an electronic repository for shares and other securities. On the contrary, a trading account facilitates the authority to place buy/sell orders. It marks the generated financial transactions, representing the receipts and payments of funds in the trading account. The ledger balance represents the total settled cash available in your trading account. Knowing the ledger balance can help you manage your portfolio and make the right decisions with your money. This article will help you understand the meaning of ledger balance, how to calculate it, and the significance of ledger balance to Indian investors.

What is the Ledger Balance?

The term ledger balance refers to the total amount of settled funds available in a trading account at the end of a trading day.  In a demat account, investors can keep physical securities such as stocks and bonds. A trading account is used for financial transactions, such as deposits, sales or purchases of securities, and withdrawals. The ledger balance of the account tells the investor what settled available funds they will have available to trade or withdraw from the Trading account on the next trading day. Ledger balance is simply an overview of the total settled funds available to the investor for either trading or withdrawal on the next trading day.

This balance is fluid and recalibrated daily based on credits (e.g., selling shares to obtain proceeds) and debits (e.g., buying shares or transferring money to a bank account). The ledger balance compiles completed transactions, thereby assisting investors in monitoring their financial movements in the stock market.

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How is Ledger Balance Calculated?

The definition of ledger balances is best described through their calculation. The calculation for the ledger balance is simple:

Ledger Balance = Opening Balance + Credits – Debits

Opening Balance: The ledger balance before trading begins on any trading day.

Credit: The money deposited into the account, such as proceeds from selling securities or deposits from the investor's bank account.

Debits: They are deducted from the account, such as payments made for buying securities, transferring money to an external source, or carrying charges (e.g., Annual Maintenance Charges/AMC).

For example, assume you have a ledger balance of ₹75,000 from the previous day's trading, which you bring into the trading day. On this day, you sell some shares of ₹20,000 and simultaneously transfer to your bank account one of ₹10,000. The ledger balance:

Ledger Balance = ₹75,000 + ₹20000 - ₹10,000 = ₹85,000

This updated balance will be visible at the end of the trading day and become the opening balance for the next day, as per the T+1 settlement in India.

Finding your Ledger Balance

To see your ledger balance, go to your broker's trading platform (website or mobile platform) and click on "Account" or "Transaction History." You can view transactions and the account ledger balance in a date-wise manner. Most broker platforms will show the ledger and available balance together for clarity.

Why is Ledger Balance Important?

The ledger balance is essential to Indian investors for three main reasons -

Portfolio Management: The ledger balance indicates to investors how much money is available for new purchases. This information is essential when adjusting one's portfolio.

Investment Decisions: Knowing the meaning of the ledger balance will help you decide whether to purchase further securities or sell some of your existing securities to rebalance your portfolio.

Planning Financial Goals: Having a ledger balance clarifies what you have available for other, bigger financial goals, such as saving for retirement or building emergency funds.

Avoiding Servicing Fees: Not keeping adequate funds in your trading account may result in a negative ledger balance, especially when margin for futures and options is not maintained or if brokerage or regulatory fees are charged. This could correlate with possible penalties.

Conclusion

For Indian investors, it is crucial to pay attention to their trading account's ledger balance to make informed investment decisions promptly, as this balance indicates the total amount of settled funds available for trading or withdrawal. This can facilitate portfolio rebalancing and cash flow management and prevent distribution penalties in margin-based trading (if you use margin). Your demat account holds your securities, but your trading account, and its ledger balance, is where your liquid capital lives. A ledger balance that is monitored regularly provides improved financial control and an easier investment experience. Always consult a financial advisor before making any major allocation decisions.

More on this topic: Factors to consider before opening a demat account | What is the Book closure date?